When to Open a Chinese Company
- Roman Verzin
- Oct 9
- 4 min read
Opening a company in China is often seen as the “next big step” for international businesses a sign of growth, credibility, and access to the world’s largest supply chain.
But here’s the uncomfortable truth:
many companies open Chinese entities for the wrong reasons and later regret it.
This article unpacks the strategic realities behind mainland incorporation:
when it adds measurable value, when it drains resources, and how to decide based on your business model, not assumptions.
You’ll learn:
The five most common misconceptions driving premature China setups
The four business models where a Chinese company actually makes sense
When you probably do not need a Chinese Company.
A practical decision framework to evaluate readiness
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Common Misconceptions About Opening a Chinese Company.
Most foreign founders approach China with a set of myths. Let’s dismantle the biggest ones and the strategic lessons behind each.
“We’ll make money from VAT refunds.”
Technically true. Practically? Not really.
To get VAT refunds, you need a real local company office, team, payroll, tax records. You’ll also have to pay the VAT upfront (7–13%) and wait months to get it back.
Even when it works perfectly, you’re looking at maybe 2–4% extra margin about what an export agent charges anyway.
So don’t build your business around refunds. Treat them like a bonus, not a strategy.
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“Chinese banks offer cheap loans.”
Sure, if you’re a local Chinese company with property or assets as collateral. If you’re a foreign-owned business? Forget it.
It’s faster (and safer) to negotiate with suppliers. Many will extend credit or shared-risk terms once you prove reliable.
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“We’ll use Chinese banks to send money anywhere.”
Not without work permits, Z visas, and residence permits and each hire needs a degree, experience, and medical clearance.
Most cities also enforce a 1 foreigner per 10 locals ratio.
There’s no “founder visa.” You can’t just bring your whole team in.
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“My Chinese company will pay my contractors abroad.”
Possible in theory, but slow, expensive, and heavily policed.
You’ll need government approval, pay 10% withholding tax, and deal with weeks of waiting.
That’s why most teams just use Hong Kong for global payments.
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“Buying a ready-made company saves time.”
Nope. You inherit hidden debts, inactive accounts, or worse.
You’ll still go through compliance.
In most cases, it’s faster and cleaner to start fresh.
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When You Probably Don’t Need One
If you:
Trade occasionally through export partners,
Just want a local bank account, or
Are hoping for quick tax tricks...
You don’t need a Chinese company.
There are easier routes Hong Kong, Singapore, or trusted export agents can do the same job with less headache.
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When It Actually Makes Sense
Here’s when setting up in China really works.
1. You’re doing high-volume trade
If your exports are above $2M a year, a mainland company might pay off.
You’ll spend $50–70k to set up, and around $30–40k yearly to maintain it but you’ll gain:
Supplier access others can’t get
Local VAT refunds
Stronger relationships and leverage
IP and brand protection
Legal control inside China
It’s not cheap, but it’s how you move from “buyer” to “partner” in China’s ecosystem.
2. You’re selling directly to Chinese customers
Retail, e-commerce, licensing all require a Chinese business license.
But don’t underestimate the market.
China doesn’t lack good products it lacks trust and differentiation.
If you’re not ready to invest in local marketing and distribution, work with a local partner or distributor first.
They already have the licenses and network.
3. You’re investing in manufacturing
If you’re setting up production, a WFOE or joint venture makes sense especially if you’re in high-tech, renewable energy, or advanced manufacturing.
You’ll likely qualify for local incentives but plan early and partner locally.
4. You need a local presence for credibility
Sometimes, you need “face”. If you’re in finance, insurance, or government procurement, your clients will ask for a Chinese certificate.
In that case, a small WFOE or Representative Office is worth it just for legitimacy.
5. You rely heavily on Chinese suppliers
If your foreign factory depends on parts from China and every delay costs you money having a local team pays for itself.
Even a small RO to manage procurement can save millions in crisis periods (remember COVID?).
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How to Decide
Ask yourself:
✔ What problem are we solving with this setup?
✔ Do we have real operations team, office, substance?
✔ Are our volumes big enough to justify the cost?
✔ How do we move cash today and what gets easier?
✔ Who will actually own and manage the company?
If you can’t answer confidently, you’re not ready.
Start smaller, Hong Kong, Singapore, or just a local partner.
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Final Thoughts
A Chinese company isn’t a trophy. It’s a tool.
And like any tool, it’s only powerful when used for the right job.
If you’re chasing short-term gains skip it.
If you’re building long-term operations, relationships, or supply chains that’s when it starts to make sense.
Your next step: map your China plan. Define your goals, volume, and partnerships then decide whether you need a mainland presence.
